GMAC bailout passed to car buyers

NEW YORK — A $5-billion government bailout of General Motors Corp.'s financial arm is intended to translate quickly into benefits for car shoppers.

GMAC Financial Services, the troubled financing entity, on Tuesday loosened lending standards, representing the first time money from the $700-billion federal bailout is promising more affordable credit to consumers.

GM said it was offering zero-percent or low-interest financing on some slower-selling 2008 and 2009 models over the next week.

GMAC also said that it would modify its credit criteria to include financing for customers with a credit score of 621 or above, a significant expansion of credit compared with the 700 minimum score put in place two months ago. GMAC had significantly cut back on the number of loans it offered as it struggled to stay afloat.

The government funds come on the heels of the $17.4-billion automaker bailout approved by the Bush administration this month.

Michael Martin, who owns Chevrolet and Saturn brand dealerships in Manassas, Va., said he thinks the loans will be key to turning around the auto industry, adding that GMAC's lifting of credit restrictions sets an example for banks that have yet to use their bailout funding to free up consumer loans.

"I think these things really spur consumer confidence, too," said Martin, who had already seen customer traffic pick up at his dealerships on Tuesday. "People are saying it's good to see GMAC back in the marketplace. Whether it's just a euphoric feeling or not, at least it's a positive."

Vehicles sales have declined sharply this year, plunging 37 percent in November to their worst level in more than 26 years, with every major automaker reporting a drop of more than 30 percent. GM was among those hit worst, reporting a 41 percent slide for the month, with company executives blaming a lack of easily available credit.

Marc Cannon, a spokesman for AutoNation Inc., a Fort Lauderdale-based auto retailer that encompasses 264 dealerships including 73 GM franchises, noted that consumers can faithfully pay their bills for years, but if they miss one or two payments along the way, their credit score can drop into the 600s.

"They're not lowering standards, they're bringing more people into the game," Cannon said of GMAC. "These people are still customers, and they're still good people you want to help get into the right vehicle."

Scott Talbott, a financial services lobbyist in Washington, estimated that 49-million more Americans would have eligible credit scores under the loosened restrictions.

But he said it will still be tough to attract car buyers who are worried about their jobs.

"If unemployment rises people are going to reduce spending. So all of these programs are contingent upon the overall economy and the restoration of consumer confidence," Talbott said.

"A new car or home is wonderful, but a job is better."

U.S. sales of new vehicles, which are down about 16 percent through the end of November, are expected to drop again in 2009 as a result of the recession.

Mark LaNeve, GM's vice president for GM North America vehicle sales, service and marketing, said GMAC's $5-billion in funding was crucial for the company to afford the zero-percent and low-interest financing on some vehicles.

In addition to the $5-billion for GMAC, the Treasury Department also will also lend up to $1-billion to GM so that the company can purchase additional equity that GMAC is planning to offer as part of its effort to raise more capital.

In exchange for the funding, the government will receive preferred shares — shares that usually have no voting rights, but are first in line for return payments — that pay an 8 percent dividend and warrants to purchase additional shares in return for the money, the department said.

The funding follows GMAC's approval as a bank holding company, which qualified it for the government aid and is expected to help GMAC avoid filing for bankruptcy protection.

The Treasury did not require that GMAC engage in more lending as a condition for receiving the government investment, spokeswoman Brookly McLaughlin said.

The $5-billion investment in GMAC has already been completed. Treasury is seeking to finalize the $1-billion loan by Jan. 16.

Information from the Associated Press and the New York Times was used in this report.

Bailout begets some bargains

Reacting to the $5-billion bailout of GMAC, General Motors announced some buyer magnets.

•Zero-percent financing for up to 60 months on 2008 Chevy Trailblazers, GMC Envoy and three Saab models.

• The 2008 Buick Lucerne sedan is available with 0.9 percent financing for up to five years.

• Various other deals are promised up and down the GM product line, including for the 2009 Chevy Cobalt and Cadillac CTS.

• Also, GMAC said it will lower its minimum credit-score requirement for retail consumers to 621 compared with the 700 minimum level set two months ago.

Fed to buy mortgage securities

In another effort to unfreeze credit, the Federal Reserve said Tuesday it will begin purchasing up to $500-billion in mortgage-backed securities next month to bolster the long-suffering housing market. The securities are pools of mortgages bundled together and sold to investors. The central bank will buy securities guaranteed by the government-controlled home loan giants Fannie Mae, Freddie Mac and Ginnie Mae, a federal agency. The Fed also said the risk of losses from the purchases is "minimal" because they are backed by the government-sponsored mortgage giants.